Consumer champion Martin Lewis has warned that a proposed change to energy market rules could make cheaper fixed tariffs more expensive for households looking to switch suppliers.
The founder of MoneySavingExpert (MSE.com) criticised plans by energy regulator Ofgem to activate its Market Stabilisation Charge, which could require suppliers gaining customers to compensate the companies those customers leave behind.
Ofgem launched a consultation on October 16, with a decision potentially allowing the charge to become active as early as November. The regulator believes the measure could protect consumers against the consequences of energy suppliers suffering significant losses if wholesale prices fall sharply.
How the proposed charge could affect bills
However, Martin warned that the arrangement could prevent households from benefiting fully from cheaper deals, because suppliers may pass the additional costs on to customers.
He said: "Ofgem's just launched a 'consultation' about switching on the Market Stabilisation Charge as soon as November. It doesn't sound a big deal, but it could be, it ain't good for consumers and I don't want it to slip under the radar."
The proposals would affect the energy market across Scotland, England and Wales. Ofgem's official Market Stabilisation Charge consultation is open until October 29.
The proposed charge would apply when wholesale energy prices fall significantly below the levels used to calculate Ofgem's energy price cap. Under the mechanism described by Martin, the charge would be triggered when wholesale prices drop more than 10 per cent below the relevant price cap assumptions.
A supplier gaining a customer would then have to compensate the customer's previous supplier for 85 per cent of the wholesale price reduction beyond that threshold.
Martin warned that the cost could make it harder for competing suppliers to offer substantially cheaper fixed deals.
He explained: "In a nutshell, it means if wholesale energy prices drop sharply, the cheap fixes and switchers' deals offered will be a lot more expensive, in order to protect energy firms' profits."
He added: "That's because any firm taking on a new customer, including on a cheap fix or other specialist tariff, will have to pay compensation to that customer's old supplier, if they switch. It's basically a form of switching penalty."
The charge would be paid between energy suppliers, rather than being a direct switching fee charged to households. However, Martin believes suppliers would be likely to factor those payments into the prices offered to new customers.
Why Ofgem wants to introduce the measure
Martin provided a simplified example to demonstrate how the measure could reduce potential savings. If the wholesale energy costs built into the price cap were £1,000, a fall to £900 would not trigger the charge. However, if those costs dropped to £800, the first £100 reduction would be excluded, while 85 per cent of the next £100 would be payable to the previous supplier.
That would result in an £85 payment between suppliers, potentially reducing the savings available through a new tariff. The figures are illustrative rather than actual household energy costs or a prediction of future bills.
Martin explained: "So almost certainly the new firm will make you pay the difference, meaning the tariff will be up to £85 more than it would otherwise have been." The amount would depend on wholesale market conditions and the details of the proposed charge.
Ofgem explained that suppliers serving customers on the price cap are expected to purchase energy in advance. If wholesale prices subsequently fall sharply, customers may leave for cheaper deals elsewhere, potentially leaving their previous suppliers with losses on energy already purchased.
The regulator believes the Market Stabilisation Charge could reduce that risk and help maintain a stable energy market. A similar mechanism was introduced during the energy crisis, when numerous suppliers collapsed following extreme wholesale price volatility.
Ofgem reintroduced the relevant licence condition in May 2026, but left the charge inactive until a further decision was made. The latest consultation concerns activating that existing mechanism.
Ofgem stated that the proposal is intended to protect consumer interests by supporting market stability during a period of high and volatile energy prices.
What households should know
Martin argued that protecting suppliers against losses could come at the expense of competition and cheaper deals for customers.
He said: "I don't like it. This is a 'Market Stabilisation Charge' but the supplier market is pretty stable, and I doubt we are at the domino risk of suppliers going bust in the way they did in the early twenties."
He added: "A good few energy firms have made large profits since then, and protecting them over winter by effectively dampening competition because it's 'not their fault' feels raw." Martin stressed that his comments represented an initial assessment of the consultation and that he intended to examine the proposals further.
The Market Stabilisation Charge has not yet been activated, and there is no immediate change to the rules for households switching energy suppliers. Consumers can continue comparing tariffs and switching where they find a suitable deal.
The proposed charge would only become relevant under the specified wholesale price conditions if Ofgem decides to activate it. Households considering a fixed tariff should compare the total estimated annual cost, standing charges, unit rates and any exit fees before making a decision.
Ofgem is inviting responses from suppliers, consumer organisations, charities and other interested parties until October 29, 2026. Full details are available on the Ofgem consultation page.
